Toptal, LLC v. Denis Grosz: Summary Judgement and Court Filing Analysis

This matter comes before the Court on Toptal, LLC's (“Toptal”) Motion for Summary Judgment (“Motion”). In the Motion, Toptal argues that Denis Grosz (“Mr. Grosz”) cannot prove that Toptal (a) breached the Note Purchase Agreement (the “NPA”), convertible promissory note (the “Note”), or (b) the Advisor Agreement entered into by the parties on November 14, 2012[1]; that Mr. Grosz's declaratory judgment counterclaims are superfluous; and that Mr. Grosz's counterclaims are barred by the statutes of limitations.

The Court has considered the parties’ motion papers, the'arguments by the parties on September 29, 2023, and October 9, 2023, and the supplemental briefing submitted by the parties on October 4, 2023. The Court finds that there are no material disputed questions of fact with respect to part (a) of Toptal's Motion - whether Toptal breached the Note Purchase Agreement (the “NPA”) and convertible promissory note (the “NOTE”) and hereby grants that part of Toptal's Motion. Given this determination, it is not statute of limitations. California Code Section 360 cannot extend the 15 day period to elect the conversion even under Grosz's reading of the statute to extend the statute of limitations period for contracts. [2]

As to Mr. Grosz's counterclaim for breach of the Advisor Agreement, Toptal argues that Mr. Grosz cannot show breach of contract because Mr. Grosz has not submitted evidence of damages. Grosz rests his damage model on the testimony of expert Gregory Nachtwey. The Court damages. Grosz rests his damage model on the testimony of expert Gregory Nachtwey. The Court will defer ruling on this counterclaim until after the hearing on the Motion in Limine concerning the admissibility of Mr. Nachtwey's opinions.

FACTS AND PROCEDURAL HISTORY*

In 2010, Mr. Du Val founded Toptal, a single-member LLC. Mr. Du Val is and always has been the CEO and sole member of Toptal. Mr. Grosz provided Toptal $1 million pursuant to the NPA on November 14, 2012, and, in exchange, Toptal issued him the Note. As part of that transaction, the parties also entered into an Advisor Agreement on the same day, pursuant to which Mr. Grosz agreed to advise the company in exchange for the opportunity to purchase 1.5% equity in Toptal subject to certain conditions that have not occurred to this day.

Mr. Grosz asserts that Toptal breached the NPA and Note by (i) failing to convert to a C-corporation and give him equity upon his written election on November 24, 2015, and/or (ii) attempting to repay his principals, and accrued interest on the Note in March 2020.

Several provisions of the NPA and Note are relevant to the Motion. First, the Note states that “[u]nless earlier converted into Conversion Shares pursuant to Section 2.2 of that certain Note Purchase Agreement dated November , 2012 among the Company and the Lender (the ‘Purchase Agreement’), the principal and accrued interest shall be due and payable by the Company on demand by the Lender at any time after the Maturity Date.”   The Note contains a provision expressly waiving presentment and demand. The NPA defines the “Maturity Date” as “May 14, 2014.”

Second, Section 2.2 of the NPA is titled, “Rieht to Convert Note.”' Section 2.2(a) provides that “[t]he principal and unpaid accrued interest of the Note will be automatically converted into Conversion Shares upon the closing of the Next Equity Financing....” A Next Equity Financing Conversion Shares upon the closing of the Next Equity Financing....” A Next Equity Financing (a defined term in the NPA) did not take place prior to the Maturity Date and has not taken place to this day. Section 2.2(b) of the NPA states: “Optional Conversion. At any time on or after the fifteenth (15th) day prior to the Maturity Date, if the Next Equity Financing has not occurred by that time, the Note, at Lender's election by written notice to the Company, will be converted into Common Stock of the Company such that the Lender receives shares constituting 8.333% of the Fully-Diluted Equity Securities of the Company following such conversion.”

The parties dispute whether Section 2.2(b) provides Mr. Grosz with a 15-day window before the Maturity Date in which to make an election to convert his Note to equity. For its part, Toptal argues that Mr. Grosz's ability to make an election under Section 2.2(b) ended on the Maturity Date. On the other hand, Mr. Grosz argues that Section 2.2(b) allows him to elect to convert his Note starting 15 days prior to the Maturity Date and continuing forever into the future. The parties agree that Mr. Grosz did not make an election under Section 2.2(b) prior to the Maturity Date.

The parties also dispute the meaning of Section 2.2(c) of the NPA, which states: “Companv Conversion Prior to Note Conversion.   For clarification, the Company agrees to complete a Company Conversion prior to any conversion of the Note pursuant to this Section 2.2.” Mr. Grosz claims that this provision, read in connection with Section 2.2(b), grants him the power to force Toptal to complete a Company Conversion. In other words, Mr. Grosz claims that once he makes an election under Section 2.2(b), Toptal must convert from an LLC to a C-corporation under Section 2.2(c) so that it can issue Mr. Grosz equity. Toptal disagrees that Section 2.2(c) grants Mr. Grosz the power to force Toptal to change its corporate form.

The NPA also contains a section titled “Events of Default,” which provides that “[t]he following events shall be considered Events of Default with respect to the Note following, and only upon, the declaration of default by the Note holder under Section 7.2:

(a) The Company shall default in the payment of any part of the principal or unpaid accrued interest on the Note for more than thirty (30) days after the Maturity Date or at a date fixed by acceleration or otherwise;.

(b) The Company shall fail to observe or perform any other obligation to be observed or performed by it under this Agreement or the Note, within 30 days after written notice from the Note holder to perform or observe the obligation.”

Section 7.2 of the NPA states: “Remedies. Upon the occurrence of an Event of Default under Section 7.1 hereof, only at the option and upon the declaration of the holder of the Note, the entire unpaid principal and accrued and unpaid interest on the Note shall, without presentment, demand, protest, or notice of any kind, all of which are hereby expressly waived, be forthwith due and payable, and such holder may, immediately and without expiration of any period of grace, enforce payment of all amounts due and owing under the Note and exercise any and all other remedies granted to it at law, in equity or otherwise.”

It is undisputed that Toptal did not convert to a C-corporation before the May 14, 2014, Maturity Date or pay any outstanding principal and interest to Mr. Grosz within 30 days after the Maturity Date.

[I] There are no fully executed copies of these agreements in the Record. The Court has reviewed a copy of the NPA and the Advisor Agreement containing Taso Du Val's (“Mr. Du Val”) signature on behalf of Toptal, but those agreements are missing Mr. Grosz's signature. The Court has not received an executed copy of the Note. However, the Court does not address whether the lack of signatures by all parties renders the Agreements unenforceable, because Count I of Mr. Grosz's counterclaims fails as a matter of law in any event.

[2] Toptal's other arguments that Mr. Grosz's remaining counterclaims are untimely is addressed in a separate order.

[3] The facts set forth in this Order are the facts “viewed in the light most favorable to the non-movant,” Mr. Grosz. Wood v. Safeway, Inc., 121 Nev. 724, 729 (2005) (“[W]hen reviewing a motion for summary judgment, the evidence, and any reasonable inferences drawn from it, must be viewed in a light most favorable to the nonmoving party.”); Chavez v. Sievers, 118 Nev. 288, 293 (2002); see also Wishengrad v. 26 Carrington Mortg. Servs., 139 Nev. Adv. Op. 13 (2023).